Supreme Court says 7th Circuit erred in Northwestern ERISA ruling

Current and former Northwestern University employees with contribution retirement plans sued their employer, its retirement investment committee, and the individual officials who administer the plans, alleging violations of the Employee Retirement Income Security Act’s (ERISA) duty of prudence. The U.S. District Court for the Northern District of Illinois dismissed the claims, and the U.S. 7th Circuit Court of Appeals (which covers Illinois, Indiana, and Wisconsin) affirmed the dismissal. Both courts found the duty of prudence was met because the employees were given an array of investment options to choose from. The U.S. Supreme Court vacated the judgment and returned the case to the lower courts, holding the 7th Circuit erred by not considering the Supreme Court’s holding about the duty of prudence in a 2015 case.

Facts

Northwestern offers two retirement plans: the Northwestern University Retirement Plan and the Northwestern University Voluntary Savings Plan. Employees may participate in both plans. As participants, they were able to select how they invest their funds from a menu of options selected by the plan administrators.

The plans included investment management fees and charges for recordkeeping services. The investment management fees were expense ratios, which are calculated as a percentage of the assets the plan participant chose to invest. The recordkeeping charges could be calculated as either expense ratios or a flat rate.